Companies Hit by Tax Surprise May Get More Time to Pay

Some Massachusetts businesses were hit with large surprise tax bills this summer because of a state decision about research costs. Governor Maura Healey's team now wants to give those companies more time to pay. If the state Legislature agrees, businesses would have until early next year instead of meeting a September 10 deadline. Any interest and penalties would also be dropped.

The problem started with a federal tax law called the One Big Beautiful Bill Act, or OBBBA. That law let companies deduct — or subtract — all of their research and development costs from their taxes in one year. Research and development, often called R&D, is money companies spend to create new products or improve old ones. The federal government allowed this full, immediate deduction starting in 2025.

Massachusetts, however, chose not to follow that federal rule right away. Governor Healey asked lawmakers to delay the change. She said following the new federal rule right away would cost the state about $288 million in lost tax money. The Legislature agreed and kept the old rule in place. Under the old rule, companies had to spread their R&D deductions out over five years instead of taking them all at once.

The trouble was that many companies did not know about Massachusetts's decision. They had already filed updated state tax returns using the new federal rule — the full, one-year deduction. When the state said that was not allowed, those companies suddenly owed much more in taxes than they had planned for. Businesses in fields like biotech, medical devices, software, and defense were hit hardest. Even architects, engineers, and designers were affected.

One example is Trivium Interactive, a small media company in Boston. Its owner, Kirsten Holmes, found out in late July that her company owed more than $100,000 in state taxes. She had only six weeks to pay it. She called it "an amount we neither have available nor can pay." Holmes said she was glad the state offered more time to pay, but wanted to talk with the Department of Revenue before saying more.

Governor Healey plans to include the payment delay in a new budget bill she will send to lawmakers in the coming weeks. Under her plan, companies would have 90 days after that bill becomes law to pay their bills. That could mean the new deadline falls in late October or early November. In the meantime, the state has told the Department of Revenue not to charge interest or penalties for missing the September 10 deadline.

Some people have asked whether Healey's decision to delay the R&D rule was really needed. By the end of the last budget year in June, Massachusetts had collected $1.93 billion more in tax money than expected. But most of that extra money came from taxes on millionaires and investment gains, and state law says those funds must go to specific things like transportation and emergency savings. So the extra revenue may not have helped close the gap caused by the R&D delay. Many business owners still feel the state should have warned them sooner so they could have planned ahead.